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Tencent News "First Line"

Author: Feng Biao Editor: Liu Peng

On July 23, the Institute of Finance of the Chinese Academy of Social Sciences released the China Macro-Financial Analysis Report for the second quarter of 2024.

In the global economy, the report believes that in the second quarter of this year, the global macroeconomic and financial situation showed the coexistence of the upward adjustment of the mid- and long-term inflation center and the strengthening of the expectation of interest rate cuts in the United States. Against this background, the report believes that the Federal Reserve's monetary policy will focus on economic growth rather than on inflation indicators.

Against the backdrop of political changes and geopolitical risks in an "election year", the report believes that there are two risks in the global economy that deserve attention: first, the uncertainty of the US election, and the need to guard against spillover shocks from US policies; second, global government debt has reached a record high, putting pressure on economic growth.

At the domestic level, the report analyzes that thanks to the coordinated efforts of macro policies and the smooth transformation of new and old growth drivers, China's economy achieved a medium-to-high-speed growth of 5%, demonstrating strong development resilience.

Specifically, the report believes that due to the lack of effective demand and the "water squeeze" of financial data, as well as the decline in credit dependence caused by economic structural transformation, the current monetary and credit indicators are generally weak. China is in the downward phase of the financial cycle, and the moderate expansion of the central government's fiscal revenue and the government's active risk mitigation will help strengthen economic resilience.

In addition, with the steady progress in resolving local debt risks, the debt expansion rate of financing platform companies has slowed down, the pressure of interest payments has been alleviated, and the restructuring and transformation process has accelerated.

In the real estate market, the report believes that marginal improvements have occurred at present, with an increase in real estate transaction volume in first-tier cities, significant improvement in second-hand housing sales and housing prices, and the investment and financing capabilities of real estate companies have been restored.

In terms of policy recommendations, the report focuses on the central bank's purchase and sale of treasury bonds. The report believes that the central bank's purchase and sale of treasury bonds in the secondary market is an important tool to promote the coordination of fiscal and monetary policies, an important starting point for improving the current macroeconomic governance system, and is of great significance for achieving high-quality economic development and promoting Chinese-style modernization.

The report uses the experience of other major economies in buying and selling government bonds as an example and draws the following lessons:

First, it is a “routine operation” for central banks to buy and sell government bonds in the secondary market.

Second, the main purposes of central banks in buying and selling government bonds have converged since the 2008 international financial crisis, shifting from regulating market liquidity to stimulating economic growth, with a stronger fiscal flavor.

Third, in recent years, the central bank has greatly enriched its toolbox for buying and selling government bonds, including both quantity-based and price-based tools. The most important tools areQuantitative easing。

Based on the above experience, the report recommends that in the face of insufficient effective demand and a situation where residents’ and enterprises’ balance sheets are “flat”, the “engine” of national credit cannot be shut down. We must give full play to the advantages of my country’s national credit and give full play to the national governance role of the central bank in buying and selling treasury bonds.

Specific suggestions include: First, moderately increase the debt ceiling, as there is still room for growth in the size of my country's national debt. More fiscal spending and more central bank purchases.

The second is to implement the strategy of "issuing more (buying) long in the short term and issuing more (buying) short in the long term" to build a dynamic treasury bond market with short-term treasury bonds as the main body and long-term treasury bonds as the supplement.

Third, we need to establish a more efficient treasury bond management system, set up a specialized institution dedicated to treasury bond policy, and further improve the treasury bond yield curve.